You don’t need me to tell you that the first time buyer’s lot is not an easy one.
In the year to June 2021 the cost of the typical FTB’s home soared £18,537 admits the government, while a Yorkshire Building Society survey this summer shows 21% of first timers deferring or dropping plans because of the pandemic.
But, don’t throw in the towel quite yet. There are other less well known options available.
It sounds counter-intuitive – and possibly crazy – to buy a property as an investment to let out before buying one to live in.
However, many buy-to-lets are small flats near city centres so are in less high-demand now thanks to the pandemic. This could be a way to make money from property. Flat prices have increased less than houses, and the rental market is flying high, giving potential to earn rent to save as a deposit on a place of your own.
The average UK rent has just topped £1,000 per calendar month for the first time says the respected HomeLet market monitor. That’s not all profit for the landlord (for example, it’s wise to recruit a letting agent to manage the flat) but this speculate-to-accumulate idea could be a regular income for you. There may be a profit on the flat when you sell, too.
Shared ownership could be a good idea for first-time buyers. This is where you buy a share of the property – typically at least 10% and at most 75% to start, and you increase your share over time.
There are restrictions: as an individual or couple your total income must be under £80,000 (£90,000 in London) and only some homes are open to shared ownership.
You still require a deposit but it’s likely to be small. If you’re buying say, 20% of a home valued at £300,000 your share is £60,000. You may pay a 10% deposit of your own share (so that’s £6,000) and then you get a mortgage for the remainder (£54,000).
Disadvantages include you having to pay rent on the share you don’t buy, which may limit your scope to save to expand the share you own.
New types of mortgage
Many have been left asking ‘should I buy a house now, or wait?’ Most prospective first time buyers can afford mortgage repayments, but can’t raise the deposit which, for a £250,000 home, could be £25,000 (10%) or £37,500 (15%) or more.
For some lucky FTBs, however, there could be an escape route via their own families.
Major lenders – Nationwide, Barclays, Lloyds and others – have family or ‘springboard’ mortgages requiring no FTB deposit. Instead a third party (typically a close relative) becomes responsible for paying if the first timer defaults – this makes them a guarantor.
Sometimes that close relative can use day-to-day savings as a sort of collateral, saved with the same company that provides the guarantor mortgage to the first timer.
A good broker will help identify the right mortgage but beware: lenders want to know precise and proven details of outgoings and income before agreeing a loan, so the more you get your financial house in order before applying, the more successful you will be.
Move iQ can connect you with mortgage advisers to help you explore your options. Get a mortgage quote below – for free.